Shocking Figures Testify against Credit Card Deals

October 26, 2007

A credit card is something you cannot imagine an average American without. And it is quite understandable. These credit products make our everyday life considerably more convenient. However, besides their numerous virtues, credit cards have a number of shortcomings and hide some dangerous pitfalls.

Getting into a credit card debt that can lead you to bankruptcy is a serious misfortune that can shake your financial standing or your even harm your moral health. Of course, if you are a reasonable and wise card holder, do not tend to impulse buying, and if you pay off your balance on time, you almost do not stand a chance to get into debtor's prison.

Probably, every American, once he or she gets to realize what a dollar is, bears in his or her mind how important it is to have a good credit history. That is why most credit card holders do their best to make their monthly payments in full and on time.

But if you turn your eyes towards the statistics, some facts might take your breath away. Figures show that 3 out of 5 US citizens are in a credit card debt; the average percentage of the debt per household make up about $ 11 000; the overall consumer credit card debt alongside with home mortgage loans by $ 0.8 trillion exceeds America's national debt, which is about $ 5.7 trillion.

Shocking, huh? Well, actually, the devil is not so black as he is painted. These figures were calculated by summing up the total amount of credit card debts all over the country and splitting them into equal parts. This is the method of averaging, or calculating the mean amount. This way of getting results for the statistics is not favored by professional economists at all, to put it mildly.

A method of medians, unlike averaging, gives more accurate results. This method is used in statistics and probability theory. With this calculation technique any extreme figures are not taken into account, only figures in the middle matter. Let's turn to an example to see the difference between the average and the median.

Imagine there are 10 credit card holders in a room. 7 of them pay off their balances on time and 3 of them have significant credit card debts, which total amounts to $ 110 000. To find out the average debt rate per person we are to split this sum into 10 equal parts. Divide 110 000 by 10 and we get 11 000. The average $ 11 000 credit card debt per family the statistics gives us.

Now you see how 7 people who responsibly pay off their balances in full and on time become debtors, who owe $ 11 000. The official results obtained with the method of medians show that 55% of households do not carry a balance on credit cards, 29% of families owe about $ 1000 and more, 21% carry a balance of around $ 2000, and only 1% has a credit card debt of over $ 20 000.

So, the situation is not that disastrous. There is no denying that we do have some problems with paying off credit card debts. And America is a credit-dependent country, it is also a fact. Just do not trust so easily all the statistics figures and try to stay out of debts.